Banco BBVA Argentina S.A. (BBAR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to BBVA Argentina's Second Quarter 2026 Results Conference Call. Today with us are Mrs. Belén Fourcade, Investor Relations Manager; Diego Cesarini, IRO and Head of Assets and Liability Management; and Carmen Arroyo, CFO. This presentation in the second quarter, 2026 earnings release are available on BBVA Argentina's Investor Relations website, ir.bbva.com.ar and will also be available for now old in the chat. First of all, let me point out that some of the statements made during this conference call may be forward-looking statements. with the meaning of the safe harbor provision found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's and our reports on Form 20-F for the fiscal year 2025 filed with the U.S. Securities and Exchange Commission. During the company's presentation, all microphone will be disabled. At this time, we are going to open it up for questions and answers. [Operator Instructions] I will now turn the call over to Belén Fourcade. Please go ahead.

Good morning, everyone, and thank you for joining us today for BB Argentina's Second Quarter 2026 Results Conference Call. During the second quarter of 2026, inflation continued to decline, reinforcing expectations that this trend will further consolidate. This environment should support a recovery in credit and consumption, together with an improvement in real incomes. Economic activity, while showing differences across sectors, it is plain signs of overall growth. In addition, announcements and approvals of projects under the rig continued, totaling more than $15 billion during the quarter, with the potential to increase capital inflows and strengthen the trade balance. The treasury also made progress in improving its debt maturity profile. It extended a significant portion of local currency maturities to 2028 and 2029 and in foreign currency, lengthened the maturities of repo agreements with banks and the swap agreement with China, while also securing financing backed by the IFI guarantees. These developments, together with reserve purchases of more than $13 billion are helping to reduce uncertainty and strengthen the macroeconomic outlook. The second quarter show early signs of a recovery in lending activity, gradually reflecting the effect of the decline in interest rates and more favorable seasonality, although still affected by elevated delinquency levels. Moving into our financial highlights for the quarter. BBVA Argentina posted an inflation adjusted net income of MXN 11.6 billion for the second quarter. This represents a 44.6% increase quarter-over-quarter, driven by the operating income remaining relatively stable in a lower inflation environment. This bottom line expansion boosted our quarterly ROE to 12.2%. In spite of net interest income being affected by lower rates on the asset side, our reported NIM remained stable quarter-over-quarter and year-over-year. NIM net of monetary position loss improved from 14% to 14.7%. Regarding efficiency, our quarterly efficiency ratio stood at 45% with personnel benefits and administrative expenses reflected the ongoing management of our corporate structure and also some costs declining related to lagging activity. Let's look at the dynamics of our balance sheet and credit portfolio. Total financing to the private sector closed the quarter at MXN 17.1 trillion. While local currency loans increased 2%, our foreign currency private loans grew by 2.5% sequentially, equivalent to a 2% increase in hard currency. Mortgage lending continues to gain momentum. Furthermore, we are successfully capturing business, mainly driven by the commercial segment and foreign currency loans. Our consolidated loan market share stood at 12%, signaling a total gain of 15 basis points over the last 12 months. On the funding side, total deposits reached MXN 19.2 trillion, private deposit market share remained flat at 9.91% but up 26 basis points year-over-year. With regard to asset quality, although nonperforming loan levels remain elevated we can identify signs of improvement in certain indicators such as early-stage delinquencies. BBVA's NPL ratio stood at 6.09% up 49 basis points during the quarter. The financial system ratio was 7.22% by the end of June, increasing 54 basis points since March. BBA's quarterly cost of risk reached 7.13%, broadly in line with the first quarter figure when adjusted for nonrecurring effects. Looking at solvency and liquidity, our liquidity ratio closed at a very comfortable 5.5%. More importantly, our capital position remains robust with a regulatory capital ratio of 18.8%, representing 128.7% excess over minimum regulatory requirements. In conclusion, as we head into the second half of 2026, BBVA Argentina is well positioned, supported by robust capital levels, strong liquidity and healthy operating results. We remain fully equipped to lead the market and support credit supply as the financial system in Argentina continues to normalize. Thank you for your time and for your continued support. I would like now to turn the call over to Carmen Arroyo, our CFO, for some closing remarks.

Thank you, Ellen. Thank you and good morning, everyone. Before we move to the Q&A, I would like to spend a few minutes sharing our view for the second half of the year, both for Argentina and for BBVA. Starting with the macro, our view -- so in our view, it remains constructive. The economy continues to normalize. Scaling remains an important encore. Inflation is coming down. The external accounts are improving, and the financial system is gradually converting after many years of very low financial intermediation. This process will be not leader, and there are still important difference across sectors. But we believe the overall direction remains positive. We expect inflation to end 2026 at around 29%, with monthly inflation moving towards 1.5% to 2% range. Beyond these numbers, we remain confident in Argentina, medium and long-term potential. Energy, mining and agriculture are already making a growing contribution to exports and investments -- the large projects under the LG framework should further increase our Entina productive and export capacity and create opportunities across the value chain. Here, being part of a global brand is an important competitive advantage for us. We can combine our international capabilities with our strong local presence to support large investment projects and the companies around them. Turning to banking activity. Argentina still has a very low credit penetration. As you all know, this gives the financial system significant room to grow as inflation and interest rates normalize and real income recover. After a relatively soft start of the year, lending activity showed some improvement in the second quarter, and we expect activity to continue improving gradually during the second half. For 2026, we expect our loan book to grow around 10% in real terms. We see opportunities across the businesses. In retail, mainly in secured lending and customers where we have strong visibility on income. And in companies and SMEs, particularly in the more dynamic sectors of the economy. We will pursue this growth with discipline, maintaining our focus on credit quality and risk-adjusted returns. On funding, we are on a very comfortable position. We have a strong liquidity, and we do not see funding as a constraint to growth. So rather than targeting a specific level for deposit growth, we will manage deposits according to our funding needs and the opportunities we see in the asset side. On margins, we expect some moderate pressure on our activity in NIM in pesos as interest rates declined. However, at the P&L level, this should be partially offset by the positive impact of lower inflation. The currency mix will also matter, of course, if dollar-denominated business gains was in our balance sheet, consolidated margins would be somewhat lower, although we don't expect this effect to be significant at least in the short term. On fees, the underlying trend remains very positive. The quarter-over-quarter comparison is affected by some one-offs recorded in the first quarter. But excluding these effects, fee income continues to show a strong growth. Net fees are up around 35% year-over-year, reflecting the good progress we are making across our main fee generating business. We expect fees to remain an important contributor to revenue growth going forward. Moving to asset quality. The recent indicators are encouraging. Our NPL ratio ended June at around 6%, and cost of risk was 7.1%. These figures still reflected the deterioration of previous quarters, while -- some of the more recent indicators are already moving in a better direction. Earlier years are improving and recent vintages are performing better after the changes we made to underwriting and origination. Based on what we see today, we expect NPLs to stable and then gradually improve during the second half, ending the year at around 5.5%. For full year 2026, we expect cost of risk to be around 6.5%. Our current ratio ended the quarter at around 80%. While looking at this ratio, it is important to consider our historical recovery experience, which is around 25% of loans in arrears being recovered before write-offs. In this context, we consider the current level of coverage adequate. We expect 80% level to be the bottom for this ratio and from here to gradually rebuild coverage as asset quality improves. Overall, we remain prudent on the timing, but we are increasingly confident about the direction of the asset quality. Our efficiency, the progress is already clear. Our quarterly efficiency ratio improved to 45% in the second quarter, and we remain very focused on cost discipline and operating leverage -- and for the full year, we expect the efficiency ratio to end below 45%. We will continue to be ambitious quarter after quarter as volume recovers. Finally, let's talk about profitability. Our quarterly ROE improved to 12.2% in the second quarter from 8.3% in the first one. For the full year, we continue to expect a real ROE in the low teens level, consistent with the guidance we have been providing in previous quarters. Going forward, higher business volumes, positive contribution from fees, continued efficiency improvements and a gradual normalization of credit costs should support profitability. There may still be volatility between quarters, but we believe the underlying trend is very positive. So to summarize, we remain constructive on Argentina and on BBVA's outlook for the second half. We expect this real loan around 10%. On funding, our strong liquidity gives us flexibility to manage deposits according to the growth opportunities we see. We expect moderate pressure on activity margins, partially compensated at the P&L level by lower inflation, while this should continue to provide a positive contribution to revenues. Asset quality indicators are starting to move in the right direction. We expect to end the year with an efficiency ratio below 45%, and we continue to guide for the real ROE in low teens. And we enter these new -- these days with a strong position with a CET1 ratio of 18.8% and a strong liquidity, and we have the capability to capture growth opportunities while maintaining a prudent approach to risk. We released DDA is well positioned for the next phase of Argentine's economic cycle. And with that, we can move to your questions. Happy to hear.

[Operator Instructions] Our first question comes from Brian Flores with Citi.

I have one on asset quality. Carmen, I know the bank is already focused in corporate loans. And I wanted to just get your thoughts on what do you think explains the deterioration? Do you think it's the uneven distribution of the recovery in the economy or what do you think explains this cost because in -- on vapor, the thing we can see is you have been already cautious in your allocation in the loan book. So I just wanted to check with you looking backwards, what do you think explains this deterioration in asset quality? And then in my second question, just a follow-up, you mentioned for the end of the year, maybe cost of risk around 6.5%. Just wanted to check with you if directionally, the improvement should be sequential. That means lower from the 7.1% and then we go anywhere between that and 6.5%? Or do you think the third quarter still is pressure and then we dropped more sharply in the fourth quarter.

Thank you for your questions. So the first question is, in you mentioned the corporates, I don't really get why -- so in the corporate segment, we see serial deterioration. So we are expecting to grow there as much as we can, depending on the on the remarks on credit. So in that segment and also in companies, so it's not 2 million companies. We are outperforming the market, and we are comfortable with the position. Going to the retail side, what we've been doing is, as you know, be more focused on recoveries on 1 side, on origination on the other side. And what we see, as I mentioned before, is that new vintages are performing better. So we -- so the quality of the assets is still not so what do we want to see in personal loans and credit cards. So these are the 2 portfolios where we are more cautious on growing and we will wait a bit more to see the better performance on that. Of course, when you split between, for example, payrolls and clients, things are much better there than nonclients or nonpayroll clients. So as I mentioned, we will be cautious on those segments. And then related to the trend for this year, what we see is that coming from up to levels. For the third quarter, we see a slight better performance and then a better one in the fourth one. So we -- what we see is like the big NPL and also cost of risk in the second quarter and then a better -- a slightly better performance in the third quarter and a better one in the last quarter to get this average cost of risk I was mentioning.

No. Super clear. And then if I may, just a quick follow-up. You mentioned the levels of coverage that will be recovered gradually Obviously, in the last years, we have seen the decrease for, I would say, from very extraordinary high levels -- but I just wanted to check with you if, I don't know, if you have a target in mind or any level that you would feel more comfortable with maybe by the end of 2017? Is it I don't know, above 100%, 100 or something or -- do you think it's more of a stable around the 100 level? Any I think, idea here would be very helpful.

Okay. So as I mentioned, we expect the 30% level to be the bottom of the ratio and from here on to gradually renew the coverage ratio as asset quality improves, I don't know if 100% is the level for next quarter, but we should see better levels in the following quarters.

Our next question comes from Julian Ohara with Goldman Sachs.

I have a quick follow-up on asset quality. I was wondering if you could somehow share the magnitude of the early vintages that you're seeing? And also, I don't know if I'm getting ahead, but if you could -- if you already have some views for 20 on loan growth and maybe an early ROE expectation would also be great. to report in.

So sorry, Julian. Thank you for your question. So the first 1 was -- so it's related to the vintages.

Yes, it was related to -- if you could share the magnitude of the improvements in the asset quality that you mentioned in the new vintages.

So as I was mentioning, so you have to split payroll, non-payroll and different products. We are -- so these segments, we are having are too early to get to a conclusion, but what we see is that from, I don't know, from levels in credit cards of around 6% a year ago. we are near 2% to 0.2% this year. so it's difficult to get an exact figure there. But what I can say is that we see a constant better figure on a monthly base in these 2 portfolios. And maybe it's useful to know that in personal loans and also in credit cards, we are already in the payroll portfolio in levels similar to December 2024. So there, we are already comfortable with what we see. So these signals are the ones we were waiting for to start growing, as I mentioned, in clients that we know their income and moreover that, that we have this payroll is also very important for us.

Yes. And do you already have any expectations for 2020? .

So maybe it's a little bit soon to answer that question. But what we expect for the system is a real growth around 10% to 15%. We will be above that. We want to outperform the market that yes, something above this level for sure. It's maybe next quarter, we can have some more color on this.